Green deal: insulate your home from rising energy bills

Government's green deal scheme offers a range of energy-saving home improvements with deferred payments linked to how much you save on your bills

The Department of Energy and Climate Change says it particularly wants to encourage the take-up of solid wall insulation and 'hard-to-treat' cavity wall insulation. Photograph: Graham Turner for the Guardian

If you are fed-up with living in a cold house or paying huge heating bills, and can't afford expensive home improvements, could the government's long-awaited green deal help? Unveiled in 2010, and promoted with the promise that "every British home will be able to install energy-saving technologies such as insulation at no upfront cost", this much talked-about scheme finally kicks off on Monday.

Big and small firms will be able to borrow from a central fund and use the money to install energy efficiency measures in homes. The householder gradually pays for the work done via the savings they will see in lower gas and electricity bills. Inevitably, it is more complicated than that – much more – but if you are keen to make your home more energy efficient and don't have the money available upfront, you will want to take a look at this scheme.

Consumers will be able to arrange for a green deal assessor to visit their home to calculate how best the property can be improved. Wall insulation or a new boiler are likely to be the most recommended work, but a host of other measures are also possible under the scheme's terms.

Once you have a home improvement plan in place, you will have to wait until January before you can sign up for work to start. The scheme will particularly appeal to those living in rural areas off the gas grid who currently heat their home using oil or LPG. When combined with the government's Renewable Heat Incentive, due next year, householders will be able to replace their heating with a renewable system and spread payments over many years.

Energy-efficiency firms across the UK (though not in Northern Ireland) have been gearing up for the green deal, which they hope will rejuvenate the sector and help bring Britain's traditionally poor housing stock into the 21st century. And with ministers keen to get the scheme up and running with a good take-up, and backing it with £200m, it looks as though those signing up at the start will see some financial benefits for being an early adopter.

So how does it work in detail? At the heart of the green deal legislation is the "golden rule," which states that estimated savings on bills must always equal or exceed the cost of the work.

If you agree to have work done, the firm that installs the measures informs your electricity supplier about your green deal "plan" so that your payments for the work can start to be collected through your electricity bills. Your energy supplier then writes to you confirming the details.

The Department of Energy and Climate Change (Decc) says it particularly wants to encourage the take-up of solid wall insulation and "hard-to-treat" cavity wall insulation, which is often expensive – typically £5,000-£10,000 per home for solid wall insulation. It can take many years to recoup the cost in lower energy bills, but once this type of insulation is installed, it can transform a home's energy efficiency, delivering benefits for decades.

How much you can "borrow" will depend on the identified savings based on the size of your home, the number of occupants and the current size of your bills. Some work, such as double glazing, may require an upfront part-payment. The same may apply to those looking to install an A-rated gas boiler, typically costing £2,500. Householders will be able to use the scheme to pay to install electricity generating solar panels, but won't be able to include the feed-in-tariff payments when calculating the savings, meaning some upfront payments will again be required.

Consumers will initially have an Energy Performance Certificate survey carried out which will be used to create your green deal plan. Some companies will charge householders for the survey and plan, while other firms are expected to offer them free as long as you take their package of measures.

Decc says it has put in place a scheme that will let "the market" decide how the deal is offered to consumers. It expects some firms to be able to offer deals on an interest-free basis, while others will charge interest. Currently, it looks as though 7.5% will be a typical rate, but this could change.

Decc says it has set up the scheme in a way that householders will be able to use their local plumber, provided they have been through the accreditation process. It adds that consumers signing up should see a seamless process.

What looks certain is that those signing up will have to do a lot of shopping around. Different companies will offer different terms, and it will be a case of working out which is best. Those "borrowing" more than £10,000 will be required to get several quotes. Buyers will also want to compare what they are told with the cost of borrowing on the high street. Expect a rash of websites comparing the cost of these offerings.

Green deal borrowers will be able to pay off their "loans" early, but there might be redemption fees, which could be significant if the loan was taken over more than 15 years. Tenants will be able to sign up to the deal, and social housing providers are expected to be big users.

Although much of this area looks set to be dominated by the "big six" energy firms, the government wants the scheme to be available through small plumbing and other energy firms as well. Meanwhile, Ecology building society and the Energy Saving Co-operative have launched what they describe as a "co-operative, community-based alternative" to the green deal that will be available initially in Oxfordshire and the Midlands. They say it is about putting power in the hands of homeowners and small businesses to help them capture the benefits "rather than handing these over to the financial markets and the 'big six'".

Decc says anyone selling green deal products will have to be accredited, and needs to have been through the training process. It hopes this will cut out much of the mis-selling that has blighted the energy and solar markets in particular. Strict standards will be put in place to prevent consumers being ripped off by cowboys, it says. Customers in dispute with providers will have access to an ombudsman service.

Some people will wonder what happens if they move house after signing up. One of the clever bits of the green deal is that the debt remains on the home's electricity account until it is paid off. If you move house, the next owner is expected to take on the repayments, which is fair given that they will be enjoying the benefits. Equally, renters moving into a property will have to pay for any measurers carried out by previous tenant/landlord.

The government says anyone who has had work done will still be able to switch gas and electricity supplier – although very small/new suppliers may not accept green deal debts.